Senwes profit plunges 18% as two seasons of drought empties silos

Senwes’ annual results for the year that ends this month were hampered by droughts as after-tax profits decreased by more than 18 percent, the agribusiness group said yesterday.

Francois Strydom, the company’s managing director, said the agricultural trade environment had been the toughest over the past eight years as a “second year of drought, combined with the challenging macro-economic elements had a detrimental effect on farmers in the Senwes area”.

The firm posted a turnover of R11.48 billion and an after-tax profit of R251 million – “a decrease of 17.3 percent and 18.2 percent, respectively, compared with the previous year. This is mainly attributed to a decline in business activities after two consecutive seasons of drought,” he said.

Strydom added: “Lower grain volumes were handled by the Senwes silo network, and producers cut back on their spending on capital goods and input elements and postponed this to coming seasons.

“Competition in the shrinking market was fierce and Senwes became aware of quite a number of local and international companies whose models attempted to protect and pursue market share at all costs.”

The company managed to increase after-tax profit from continued operations by 4 percent because of the good performance of Senwes’ mechanisation and credit divisions.

“However, normalised headline earnings declined by 35 percent because of reduced grain volumes and the underperformance of the African investments.

“Senwes succeeded in maintaining its own capital ratio at 40 percent by year-end, and managing the balance sheet at the same levels as in the previous year, despite proven growth in the debtors book,” said Strydom.

He added that the financial year was “characterised by challenging production conditions, which had a direct effect on the company’s customer base and consequently on the Senwes group”.

He also pointed out that the western part of the country had experienced a downward cycle for the past two-and-a-half years because of the drought, while the eastern part of the country had experienced more favourable production conditions.

“In order to reduce the risk associated with downward cycles in agriculture, Senwes follows a diversification strategy, which cushions the concentration of risk.

“This strategic objective was once again applied successfully in order to combat the low production yields that left the Senwes silos at their lowest levels since the introduction of the free market,” Strydom said.